About the New Required Notice of Voluntary Prelitigation Mediation for HOA and Condominium Disputes

About the New Required Notice of Voluntary Prelitigation Mediation for HOA and Condominium Disputes

All HOAs and condominium associations in North Carolina now have the legal duty to inform all members at least yearly that they have the right to request voluntary mediation of any dispute with the association, except for disputes regarding payment of dues or assessments. Either party can decline to engage in mediation. This requirement took effect on July 1, 2013 pursuant to new statute 7A-38.3F, passed as Session Law 2013-127. You can read the text of the law here: SL 2013-127.

I have opined in a prior post on my blog that this new law was silly and unnecessary because it is completely voluntary, and I stick by that opinion. Anyone can agree to voluntary mediation or arbitration of any legal dispute already, so this law did not add anything new. My law practice certainly encourages these voluntary "alternative dispute resolution", or ADR, processes, and they can be very helpful in resolving legitimate disputes, especially business disputes. Remember, the law specifically states that either party can decline to participate in mediation for any reason, so the law has exactly zero teeth to it.

Anyway, your association now needs to notify its members of this new opportunity to request mediation of any legal dispute, other than a dispute involving the payment of dues. How should it do so? The law states that the notice must be posted on your HOA website, if you have one. If your HOA does not have a website - and it should, this is 2013 after all - the notice must be provided "at the same time and in the same manner as the names and addresses of all officers and board members of the association are published", which is already required by the Planned Community Act and the Condominium Act. (Your HOA is already doing this, right? It should be.) So this usually means within the annual meeting notice for HOAs which do not have a website. The main point is that the notice must be published in writing at least once per year.

So how should the notice be worded? Here is my recommended wording, which you are welcome to use verbatim: "Pursuant to N.C.G.S. Section 7A-38.3F, the association is required to notify its members yearly that members and the association may request voluntary mediation of any dispute with the association arising under the North Carolina [Planned Community Act][Condominium Act] (use whichever is appropriate for your association), or under the association's declaration, bylaws, or rules and regulations, other than a dispute relating solely to the failure to pay dues or assessments. Either party can decline to engage in mediation for any reason. The procedure for requesting mediation is set forth in the statute."

Please give me a call or drop me an email if our HOA law team can assist your HOA or management company in understanding or implementing this new requirement, or if we can be of assistance in any other way. We appreciate your reading our HOA law blog and encourage you to share it with others who may be interested. Thank you!

2013 Changes to North Carolina HOA Laws

The General Assembly has made some important, and some not-so-important, changes to HOA law in its 2013 session. With the session now nearing its end, let’s review the changes that have been enacted into law. It does not appear that any other changes to HOA laws will be enacted this year.

Be aware that if you use the N.C. General Assembly's website to look up the North Carolina statutes, they always run one legislative session behind. So, the current statutes on the website do not reflect all the changes discussed here. It will most likely be next year before the statutes on the General Assembly website are updated. 

Changes to the Foreclosure Process

House Bill 331, which was enacted as Session Law 2013-202 on June 26, is the most important bill affecting HOAs this year. It makes a few significant changes to HOA foreclosure procedure by re-writing section 3-116 of both the Planned Community Act and the Condominium Act. The changes take effect on October 1. This bill was primarily drafted and supported by the community associations subcommittee of the Real Property Section of the North Carolina Bar Association, of which I am a member, so while I was not a great supporter of the bill because I had not encountered the issues it seeks to remedy, I did have some input into the drafting of the bill, and the changes it makes are in general positive.

The changes are primarily designed to conform the HOA foreclosure process to the standard power-of-sale foreclosure process used for deeds of trust. Some clerks of court and title companies had raised concerns with the legality of the process HOAs had been using since it seemed to skip some steps required in typical non-HOA foreclosures.

The most important change is that a trustee must now be appointed to handle the foreclosure process, just as in typical non-HOA foreclosures. But don’t panic! The trustee can be the HOA attorney as long as the homeowner does not “contest” the foreclosure proceeding. If the homeowner does contest the proceeding, then an independent trustee (i.e., a separate attorney) must be appointed – but the homeowner is responsible for all the fees and expenses of the trustee.

While the $1200 cap on attorneys’ fees for an “uncontested’ foreclosure remains in place, the bill does clarify that this cap does not apply to any other legal proceedings to collect amounts due from a homeowner, or to processing payment plans and the like. We have run into this issue recently with the Mecklenburg Co. clerk of court.

In addition to some other rewordings and reorganizations of section 3-116, H.B. 331 makes one further change which is very much to the benefit of HOAs. It provides that a lender who takes title to a lot or unit by foreclosure is subject to assessments after the upset bid period passes, regardless of when the lender records the deed into itself or the foreclosure purchaser. While this does not address the issue of lenders who put off the foreclosure process, at least it does address those who foreclose but delay in recording their deed, which is certainly a step in the right direction.

Read the bill here.

Voluntary Pre-Litigation Mediation

On June 19, the General Assembly passed the dumbest of its 2013 HOA legislation, House Bill 278, enacted as Session Law 2013-127. It went into effect on July 1 and provides for a completely voluntary process by which HOAs and homeowners can agree to mediate legal disputes – which they could have done anyway without this pointless bill. The bill is codified in new statute 7A-38.3F. Chapter 7A is the chapter of our laws dealing with judicial matters – so be aware that while this is an HOA law, it is found in Chapter 7A and not in Chapter 47F (the Planned Community Act) or 47C (the Condominium Act).

The bill provides that HOAs and homeowners can agree to mediate a dispute, although neither is required to and either can decline to do so. If they do agree to do so, then the mediation is handled in the same way as any other mediation, which can result in a legally-binding settlement – again, if both parties agree.

The new law does not apply to disputes regarding payment of assessments, so I guess those now cannot be mediated even though they could have been before. Or maybe they still can be. Who knows? As is typical of the other anti-HOA legislation proposed by Rep. Deborah Ross of Wake County, who thankfully resigned from the General Assembly on June 1, such as her prior proposals to eliminate HOA foreclosures altogether, this bill is poorly-written and not well thought out in pretty much all respects. The mediation was originally proposed to be mandatory, so we can be thankful that we were at least able to make it voluntary during the legislative process.

The only really important thing to know about this bill is that the HOA is required to inform homeowners of its existence at least once per year. Typically this should appear on the HOA’s website, or on its annual meeting or budget ratification meeting notice if the HOA does not have a website. Since HOAs are required to publicize the names and addresses of the board members and officers annually in the same way anyway, this should not add much to HOAs’ administrative burdens.

Read the bill here.

Validity of Amendments and Access Through Common Areas

Senate Bill 228, enacted as Session Law 2013-34, was passed on April 24 and takes effect on October 1. It makes some fairly technical adjustments to sections 3-107 of the Planned Community Act and the Condominium Act, and to sections 1-102, 1-104, 2-103 and 2-117 of the Planned Community Act. The changes 1) confirm HOA authority as found in their articles of incorporation, bylaws and CCRs; 2) confirm that amendments to CCRs made in accordance with the articles of incorporation, bylaws and CCRs (which had been placed into some doubt by some recent appeals court decisions) are presumed valid; and 3) require lot and unit owners to provide access through their lot/unit to the HOA and other owners if needed for repairs or maintenance to common areas or other units. This bill was supported by our HOA subcommittee. It should not affect the day-to-day operations of HOAs but does help clarify some legal issues.

Read the bill here.

Please give me a call or drop me an email if our HOA law team can assist your HOA or management company in understanding or implementing these changes, or if we can be of assistance in any other way. We appreciate your reading our HOA law blog and encourage you to share it with others who may be interested. Thank you!

When Homeowners Attack

I spoke at a “board member boot camp” Tuesday night to give legal tips to new homeowners association board members, and briefly touched on security and safety issues for board members. Luckily, I said, homeowner violence against HOA board members is very rare, and I am not aware of any in our area since I’ve been practicing law. Then on Friday, a Harrisburg, N.C. man apparently killed two HOA board members and himself in a dispute over tree removal. Read the article here: http://www.hickoryrecord.com/independent_tribune/news/article_de356028-98d2-11e2-a47e-0019bb30f31a.html

There are no life-and-death HOA decisions. While it is a reality that HOAs are communities, and as with any community, there are occasional disagreements and occasionally members who may be mentally unbalanced, HOA disagreements need not become disagreeable. How can HOAs contend with these realities while still enforcing their rules and regulations? Here are ten tips:

1. Foster a sense of community. Disagreements are much less likely to escalate in HOAs with a strong sense of community. HOA-sponsored cookouts, movie nights, and even clean-out-your-garage days (where the HOA hires a junk removal company and members can take large unneeded items to the curb) help neighbors get to know each other and build up a level of trust.

2. Be open and communicative. HOAs should over-communicate and over-meet. When members feel aware of what is going on and have had a chance to participate in the decision-making process, they are less likely to take personal offense at a decision with which they disagree.

3. Be willing to compromise. Again, there are no life-and-death HOA decisions. HOA board members should be reasonable in their demands and prepared to compromise when conflict arises.

4. Don’t perpetuate a culture of conflict. At times a board member with a take-charge, take-no-prisoners attitude may be elected. While such traits can be great in business, such a person may not be best suited for a leadership role with an HOA. Strong personalities can be lighting rods for conflict, especially when the member on the other side of a conflict also has a strong personality. Boards should have a culture of reasonableness and understanding. If a dispute appears to be escalating, the board should consider changing the individual board member(s) involved to try to defuse what oftentimes is largely a personality clash.

5. Rely on experienced advisors. Only the smallest HOAs should do without professional management. Professional HOA managers and lawyers have the experience to recognize and defuse potentially dangerous situations.

6. HOAs are not police forces. HOAs are created to maintain property values and common properties – not to be a police force for the neighborhood or to resolve conflicts among neighbors. Board members should remove themselves from volatile situations. If there are concerns about personal safety or laws being broken, law enforcement should be called without hesitation.

7. Be prepared. For meetings involving controversial subjects, it is always worth the cost to have an on- or off-duty police officer present in uniform. Smart HOAs appoint safety committees whose members may receive training in recognizing dangerous situations.

8. Don’t go it alone. A board member should never go alone to meet with a homeowners if conflict could arise. There is strength and safety in numbers.

9. Meet at neutral territory. Meetings involving controversial matters should be held in public places where there is a natural inclination for people to be better behaved – not at the disgruntled member’s home, for example.

10. Keep records of adversarial or violent interactions. Usually, although not always, there are past clues foretelling an individual’s future violence. The HOA should keep records of any violent or threatening interactions with members; these records could be useful in police investigations later or if a restraining order needs to be obtained.

The tragedy of homeowner violence is made even worse if good board members become reluctant to serve for fear of their personal safety. I certainly hope it does not come to that, and that I can continue to tell my HOAs that violence against HOA board members is a rarity.

UPDATE (4-2-2013): I was contacted yesterday by a lawyer who is a friend of mine and an officer of the HOA where the incident occurred. She assured me that this was not, in fact, an HOA-related incident, but apparently simply a dispute among neighbors that had nothing to do with anything HOA-related. Nonetheless, the above tips are good advice for all HOAs.

For more information, visit us at www.HOANinjas.com.